In a matter of days, African leaders have made multiple appeals for financial aid to combat the impact of the Covid-19 pandemic.
More than 50 African countries have asked for immediate $100 billion funding from foreign donors to help mitigate the fallout of the coronavirus pandemic that could cost millions of people to lose their jobs.
The appeal was made on Tuesday in an online meeting between finance ministers of the 54 nations that are part of the Economic Commission for Africa (ECA), a regional agency of the United Nations. For the second time in two weeks, some of Africa’s most indebted countries have asked for immediate financial support.
The ministers noted that since March 19, when the first call was made, the number of cases and deaths from Covid-19, the disease caused by the new coronavirus, has surged substantially.
In just 12 days, the number of infected people rose from 633 in 35 countries to 5,318 in 46 countries. More than 175 people have lost their lives with most of the cases being reported from Algeria, Egypt and South Africa.
Many African countries, already struggling with poverty and militancy, don’t have additional resources to spend on equipping hospitals to deal with the expected increase in the number of patients who require ventilators and ICUs as seen in Italy and Spain.
The average stimulus package announced by African countries was equivalent to 0.8 percent of their gross domestic product (GDP), or one-tenth the average level of the stimulus of developed countries, which stood at 8 percent of their GDP and trillions of dollars.
More than one-third of the $100 billion in funding that Africa wants will be spent on servicing the debt of the developing countries. This year, the continent is expected to pay $44 billion in interest payments to creditors, which include the IMF, World Bank, wealthy countries including China, and private investors.
The IMF and World Bank have also issued appeals for debt moratoriums and asked wealthy countries to stop collecting them. But the two global financial institutions must also waive debt payments that are owed them, says Jubilee Debt Campaign UK, which lobbies for debt relief for emerging nations.
A recent study by Jubilee found that 63 impoverished countries were consuming 5.2 percent of revenues to pay foreign creditors in 2011. This average rose to 12 percent in 2019.
In just five years between 2012 and 2017, the average external debt as a percentage of the GDP of low-income developing countries surged to 50 percent from 30.35 percent.
Countries like Ghana, which heavily depend on the export of gold, oil and cocoa, are particularly at risk of a crisis as the price of commodities have plunged and the cost of dealing with the Covid-19 pandemic is rising.
Debt write-offs are not unusual. In 2001, developed economies agreed to give debt service relief amounting to $34 billion to 23 Heavily Indebted Poor Countries (HIPC), 19 of which were in Africa. The initiative was meant to tackle poverty.
This becomes especially important in times of an infectious outbreak, which can be a severe burden on the limited resources of most impoverished countries.
In 2015, the IMF gave a $100 million debt relief to Guinea, Liberia and Sierra Leone, the countries worst affected by the Ebola virus.
But this time, the United States and significant creditors in Europe could be hesitant to reach any restructuring settlement because of China’s growing role as a lender to developing countries.
China has emerged as the single largest creditor to African governments, accounting for as much as 24 percent of their total external debt.
There’s also an issue of the private-sector creditors. Out of the total debt of the African countries, around 32 percent is owed to private investors - this comes to approximately $132 billion, according to one study done two years back.
Tim Jones, the Head of Policy at Jubilee Debt Campaign UK, says in some ways dealing with the private sector is more accessible than governments.
“You can just stop paying them. One cost of suspending the payment is not being able to borrow more money from the private sector. That’s already the case with the international financial markets right now. They won’t be lending money to many governments anyway,” he told TRT World.